Published in The Financial Express on Sunday, 14 June 2015.
Can RMG help achieve middle-income status?
Md. Harunur Rashid
The finance minister, while proposing FY 2015-16 budget before the parliament, proposed to raise tax at source on export proceeds of readymade garments (RMG) to one per cent from existing 0.30 per cent. He described this as the final tax liability for the sector. One day later, the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) and the Bangladesh Textile Mills Association (BTMA) demanded withdrawal of increased tax at source from export prices of RMG to achieve middle- income status in 2021.
The hike in tax at source will cause loss of competitiveness of the country’s readymade garment sector. At the same time, RMG exporters feel the GSP plus status for Pakistan and Trans-Pacific Partnership agreement among Vietnam, Taiwan, Philippines, the US, Canada, Japan and Australia have created more challenges for Bangladesh’s RMG exporters.
The proposed tax hike at source on exports is completely illogical and it would affect the future of readymade garment sector, according to the president of the BGMEA at a press conference on the proposed budget. The proposed budget is business-friendly but not textile-friendly, said Atiqul Islam on behalf of the trade bodies. He also said that the textile and garment sector would be the worst victim of the proposed budget and the proposal for raising tax at source would hinder the normal growth of the sector.
According to the president of the BGMEA, the cost of production increased by 10 per cent in 2015 from 2013 as expenditure on account of workers’ wages rose by 15 per cent during the period. Under the circumstances, the proposed tax rise at source would damage the competitiveness of the sector.
At the same time, the deprecation of Euro, Canadian dollar and Russian rouble against US dollar has created another challenge for the sector. Moreover, the Centre for Policy Dialogue (CPD) has found that the apparel sector suffered the highest loss of Tk 13.18 billion in first three months of this year.
On the other hand, the commerce minister formally announced the target for yearly RMG turnover. He has already set the initial target $33.56 billion for FY2015-2016 with a growth of 7.49 per cent on the basis of data from the Export Promotion Bureau and considering global and local economic situations.
It is to be noted that in the outgoing FY2014-2015, the target was $33.2 billion. The largest export earner of the country already has failed to reach the target. As per the latest EPB data, during July-April of the FY2014-15, Bangladesh earned $25.30 billion from exports while the country’s income source tax was .03 per cent.
As per the EPB data, the woven sector earned $10.55 billion with still 4.53 per cent short of the target and the knitwear fetched over $10 billion which was also 6.3 per cent less than the target. At this time, the RMG sector is facing a lot of challenges including image crisis caused by the political turmoil that occurred in first three months of the current year.
It is true that textiles and garments industry were enjoying various incentives but the sector also gave a lot to the economy. Meanwhile, BKMEA president AKM Salim Osman said the proposed tax hike at source on exports will be dangerous for the sector. “We have to keep in mind that the whole nation as well as the government is dependent on textile and garment sector.” He added that there is no country in the world where buyers and brand groups (Alliance and Accord) are working to make the factories compliant.
In the meantime, the CPD also suggested that the government should provide incentives to the affected sectors in the budget. Presently, garment exports to the US market are struggling, while shipment to the EU market is facing greater competition.
The country’s entrepreneurs and 4.6 million workers are grateful to the government for giving various incentives from 1980 but it is true that Bangladesh is known to the world because of its textile and garment sectors. Amid competition the hike in tax at source will hamper the growth of the RMG sector. Such a decision will put the country’s major foreign currency earning sectors in great trouble.
If the government gives policy support to RMG, the sector will make it possible to give the nation US$ 50 billion export along with generating additional 6.5 million jobs in 2021.